**Exhibit 10.25**
**ARGONAUT TECHNOLOGIES, INC.**
**CHANGE OF CONTROL SEVERANCE AGREEMENT**
     This Change of Control Severance Agreement (the “Agreement”) is made and entered intoeffective as of September 01, 2004 (the “Effective Date”), by and between Steve Nelson (the“Employee”) and Argonaut Technologies, Inc., a Delaware corporation (the “Company”). Certaincapitalized terms used in this Agreement are defined in Section 1 below.
R E C I T A L S
     A. It is expected that the Company from time to time will consider the possibility of a Changeof Control. The Board of Directors of the Company (the “Board”) recognizes that such considerationcan be a distraction to the Employee and can cause the Employee to consider alternative employmentopportunities.
     B. The Board believes that it is in the best interests of the Company and its shareholders toprovide the Employee with an incentive to continue his employment and to maximize the value of theCompany upon a Change of Control for the benefit of its shareholders.
     C. The Board believes that it is in the best interests of the Company and its shareholders toprovide the Employee with payment upon a Change of Control.
     D. In addition, in order to provide the Employee with enhanced financial security andsufficient encouragement to remain with the Company notwithstanding the possibility of a Change ofControl, the Board believes that it is imperative to provide the Employee with certain severancebenefits upon the Employee’s termination of employment in certain circumstances following a Changeof Control.
     E. The Company and the Employee are parties to a Change of Control Severance Agreement datedApril 1, 2004 (the ‘**Prior Agreement**’), which agreement the parties desire to amend and restate inits entirety.
AGREEMENT
     In consideration of the mutual covenants herein contained and the continued employment ofEmployee by the Company, the parties agree that the Prior Agreement is terminated and superseded inits entirety by this Agreement and further agree as follows:
     1. Definition of Terms. The following terms referred to in this Agreement shall havethe following meanings:
          (a) Cause. “Cause” shall mean (i) any act of personal dishonesty taken by theEmployee in connection with his responsibilities as an employee which is intended to result insubstantial personal enrichment of the Employee, (ii) Employee’s conviction of a felony which theBoard reasonably believes has had or will have a material detrimental effect on the Company’s
 

 

reputation or business, (iii) a willful act by the Employee which constitutes gross misconductand is materially injurious to the Company, and (iv) continued willful violations by the Employeeof the Employee’s principal duties and obligations of employment after there has been delivered tothe Employee a written demand for performance from the Company which describes the basis for theCompany’s reasonable belief that the Employee has repeatedly failed to substantially and materiallyperform his duties, provided, however, no act shall be deemed to constitute “Cause” if committed atthe direction of the Board or otherwise by Employee in good faith and in the reasonable belief thatsuch act is in the Company’s best interest.
          (b) Change of Control. “Change of Control” shall mean the occurrence of any of thefollowing events:
               (i) the approval by shareholders of the Company of a merger or consolidation of the Companywith any other corporation, other than a merger or consolidation which would result in the votingsecurities of the Company outstanding immediately prior thereto continuing to represent (either byremaining outstanding or by being converted into voting securities of the surviving entity) morethan fifty percent (50%) of the total voting power represented by the voting securities of theCompany or such surviving entity outstanding immediately after such merger or consolidation;
               (ii) the approval by the shareholders of the Company of a plan of complete liquidation of theCompany or an agreement for the sale or disposition by the Company of all or substantially all ofthe Company’s assets;
               (iii) any “person” (as such term is used in Sections 13(d) and 14(d) of the SecuritiesExchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 undersaid Act), directly or indirectly, of securities of the Company representing 50% or more of thetotal voting power represented by the Company’s then outstanding voting securities; or
               (iv) a change in the composition of the Board, as a result of which fewer than a majority ofthe directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A)are directors of the Company as of the date hereof, or (B) are elected, or nominated for election,to the Board with the affirmative votes of at least a majority of those directors whose election ornomination was not in connection with any transactions described in subsections (i), (ii), or (iii)or in connection with an actual or threatened proxy contest relating to the election of directorsof the Company.
          (c) Involuntary Termination. “**Involuntary Termination**” shall mean (i) without theEmployee’s express written consent, a significant reduction of the Employee’s duties, position orresponsibilities relative to the Employee’s duties, position or responsibilities in effectimmediately prior to such reduction, or the removal of the Employee from such position, duties andresponsibilities, unless the Employee is provided with comparable duties, position andresponsibilities; (ii) without the Employee’s express written consent, a substantial reduction,without good business reasons, of the facilities and perquisites (including office space andlocation) available to the Employee immediately prior to such reduction; (iii) a reduction by theCompany of the Employee’s base salary as in effect immediately prior to such reduction; (iv) amaterial reduction by
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the Company in the kind or level of employee benefits to which the Employee is entitledimmediately prior to such reduction with the result that the Employee’s overall benefits package issignificantly reduced; (v) without the Employee’s express written consent, the relocation of theEmployee to a facility or a location more than twenty-five (25) miles from his current location;(vi) any purported termination of the Employee by the Company which is not effected for Cause orfor which the grounds relied upon are not valid; or (vii) the failure of the Company to obtain theassumption of this Agreement by any successors contemplated in Section 6 below.
          (d) Negotiated Change of Control. “**Negotiated Change of Control**” shall mean the occurrenceof a Change of Control by virtue of clause (i), (ii) or (iii) of the definition of “Change ofControl” that is approved by the Board.
     (e) Termination Date. “**Termination Date**” shall mean the effective date of anynotice of termination delivered by one party to the other hereunder.(f) Value of theCompany. “**Value of the Company**” shall mean (i) in the case of a Negotiated Change ofControl, the value of the consideration received per share of common stock of the Company(the “**Price Per Share**”) multiplied by the total number of common shares (including thenumber of shares which would be outstanding upon exercise of any options or warrants, orupon conversion of any securities convertible into common stock) of the Company (the “**FullyDiluted Outstanding Shares**”); provided, however, that, if any portion of the considerationreceived by the Company’s shareholders consists of common stock of any other company mergingwith or acquiring the Company (the “**Acquisition Partner**”), that portion of the Price PerShare shall be calculated using the applicable exchange ratio contained in the definitiveagreement multiplied by the average closing price of the Acquisition Partner’s common stockover the five trading day period up to and including the trading day preceding the closingof such Negotiated Change of Control, (ii) in all other cases where the Company’s commonstock trades on an established stock exchange or a national market system, the averageclosing price of the Company’s common stock over the five trading day period up to andincluding the trading day preceding the occurrence of a Negotiated Change of Controlmultiplied by the Fully Diluted Outstanding Shares or (iii) in all other cases, the fairmarket value of the Fully Diluted Outstanding Shares on the date of the Negotiated Change ofControl, as determined in good faith by the Board concurrent with or up to thirty (30) daysin advance of such Negotiated Change of Control or, if such a timely determination is notmade, following such Negotiated Change of Control.
     2. Term of Agreement. This Agreement shall terminate upon the date that allobligations of the parties hereto under this Agreement have been satisfied or, if earlier, on thedate, prior to a Change of Control, Employee is no longer employed by the Company.
     3. At-Will Employment. The Company and the Employee acknowledge that the Employee’semployment is and shall continue to be at-will, as defined under applicable law. If the Employee’semployment terminates for any reason, the Employee shall not be entitled to any payments, benefits,damages, awards or compensation other than as provided by this Agreement, or
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as may otherwise be established under the Company’s then existing employee benefit plans orpolicies at the time of termination.
     4. Severance Benefits.
          (a) Termination Following A Change of Control. If the Employee’s employment with theCompany terminates as a result of an Involuntary Termination on, in connection with or at any timewithin twelve (12) months after a Change of Control, regardless of whether Employee obtainsemployment elsewhere, Employee shall be entitled to, upon Employee’s execution of a general releaseof claims against the Company or any of its successors or assigns, the following severance benefitswhich are in lieu of benefits (if any) as may then be established under the Employee’s thenexisting severance agreement or the Company’s then existing severance and benefits plans andpolicies at the time of such termination or as may be currently established under the Company’sexisting severance and benefits plans and policies at the date of execution of this Agreement:
               (i) Twelve (12) months of Employee’s base salary as in effect as of the date of suchtermination, less applicable withholding, payable in accordance with the Company’s regular payrollpractices;
               (ii) all stock options granted by the Company to the Employee prior to the Change of Controlshall become fully vested and exercisable as of the date of the termination to the extent suchstock options are outstanding and unexercisable at the time of such termination and all stocksubject to a right of repurchase by the Company (or its successor) that was purchased prior to theChange of Control shall have such right of repurchase lapse with respect to all of the shares;
               (iii) If (i) the Employee constitutes a qualified beneficiary, as defined in Section4980B(g)(1) of the Internal Revenue Code of 1986, as amended and (ii) Employee elects continuationcoverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended(“COBRA”), within the time period prescribed pursuant to COBRA, then the Company shall reimburseEmployee for up to six (6) months health care coverage equivalent to the level of coverage that wasprovided to such employee immediately prior to the Termination Date (the “Company-Paid Coverage”).If such coverage included the Employee’s dependents immediately prior to the Change of Control,such dependents shall also be covered at Company expense. Company-Paid Coverage shall continueuntil the earlier of (i) six (6) months from the date of the Termination Date, or (ii) the date theEmployee and his dependents become covered under another employer’s group health insurance planthat provides Employee and his dependents with comparable benefits and levels of coverage.
          (b) Transition Services. In the event of a Negotiated Change of Control, at thesurviving entity’s election, Employee will remain reasonably available to assist in the transitionfor ninety (90) days following the close of such Negotiated Change of Control. Employee willcontinue to receive Employee’s then current base salary and the same level of health coverage andbenefits in effect prior to the closing of the Negotiated Change of Control. Notwithstanding anyof the provisions stated herein in this Section 4(b), Employee shall be entitled to receive all ofthe severance benefits stated above in Section 4(a).
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          (c) Accrued Wages and Vacation; Expenses. Without regard to the reason for, or thetiming of, Employee’s termination of employment: (i) the Company shall pay the Employee any unpaidbase salary due for periods prior to the Termination Date; (ii) the Company shall pay the Employeeall of the Employee’s accrued and unused vacation through the Termination Date; and (iii) followingsubmission of proper expense reports by the Employee, the Company shall reimburse the Employee forall expenses reasonably and necessarily incurred by the Employee in connection with the business ofthe Company prior to the Termination Date. These payments shall be made promptly upon terminationand within the period of time mandated by law.
     5. Limitation on Payments. In the event that the severance and other benefitsprovided for in this Agreement or otherwise payable to the Employee (i) constitute “parachutepayments” within the meaning of Section 280G of the Code, and (ii) would be subject to the excisetax imposed by Section 4999 of the Code (the “**Excise Tax**”), then Employee’s benefits under thisAgreement shall be either
          (a) delivered in full, or
          (b) delivered as to such lesser extent which would result in no portion of such benefits beingsubject to the Excise Tax,
     whichever of the foregoing amounts, taking into account the applicable federal, state andlocal income taxes and the Excise Tax, results in the receipt by Employee on an after-tax basis, ofthe greatest amount of benefits, notwithstanding that all or some portion of such benefits may betaxable under Section 4999 of the Code.
     Unless the Company and the Employee otherwise agree in writing, any determination requiredunder this Section shall be made in writing by the Company’s independent public accountants (the“**Accountants**”), whose determination shall be conclusive and binding upon the Employee and theCompany for all purposes. For purposes of making the calculations required by this Section, theAccountants may make reasonable assumptions and approximations concerning applicable taxes and mayrely on reasonable, good faith interpretations concerning the application of Section 280G and 4999of the Code. The Company and the Employee shall furnish to the Accountants such information anddocuments as the Accountants may reasonably request in order to make a determination under thisSection. The Company shall bear all costs the Accountants may reasonably incur in connection withany calculations contemplated by this Section.
     6. Successors.
          (a) Company’s Successors. Any successor to the Company (whether direct or indirectand whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all orsubstantially all of the Company’s business and/or assets shall assume the Company’s obligationsunder this Agreement and agree expressly to perform the Company’s obligations under this Agreementin the same manner and to the same extent as the Company would be required to perform suchobligations in the absence of a succession. For all purposes under this Agreement, the term“Company” shall include any successor to the Company’s business and/or assets which executes and
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delivers the assumption agreement described in this subsection (a) or which becomes bound bythe terms of this Agreement by operation of law.
          (b) Employee’s Successors. Without the written consent of the Company, Employeeshall not assign or transfer this Agreement or any right or obligation under this Agreement to anyother person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rightsof Employee hereunder shall inure to the benefit of, and be enforceable by, Employee’s personal orlegal representatives, executors, administrators, successors, heirs, distributees, devisees andlegatees.
     7. Notices.
          (a) General. Notices and all other communications contemplated by this Agreementshall be in writing and shall be deemed to have been duly given when personally delivered or whenmailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In thecase of the Employee, mailed notices shall be addressed to him at the home address which he mostrecently communicated to the Company in writing. In the case of the Company, mailed notices shallbe addressed to its corporate headquarters, and all notices shall be directed to the attention ofits Secretary.
          (b) Notice of Termination. Any termination by the Company for Cause or by theEmployee as a result of a voluntary resignation or an Involuntary Termination shall be communicatedby a notice of termination to the other party hereto given in accordance with this Section. Suchnotice shall indicate the specific termination provision in this Agreement relied upon, shall setforth in reasonable detail the facts and circumstances claimed to provide a basis for terminationunder the provision so indicated, and shall specify the Termination Date (which shall be not morethan 30 days after the giving of such notice). The failure by the Employee to include in thenotice any fact or circumstance which contributes to a showing of Involuntary Termination shall notwaive any right of the Employee hereunder or preclude the Employee from asserting such fact orcircumstance in enforcing his rights hereunder.
     8. Arbitration and Equitable Relief.
          (a) Arbitration. In consideration of Employee’s employment with the Company, theCompany’s promise to arbitrate all employment-related disputes and Employee’s receipt of thecompensation, pay raises and other benefits paid to the Employee by the Company, at present and inthe future, the parties agree that any and all controversies, claims, or disputes with anyone(including the Company and any employee, officer, director, shareholder or benefit plan of theCompany in their capacity as such or otherwise) arising out of, relating to, or resulting fromEmployee’s employment with the Company or the termination of Employee’s employment with theCompany, including any breach of this Agreement, shall be subject to binding arbitration under thearbitration rules set forth in California Code of Civil Procedure Section 1280 through 1294.2,including Section 1283.05 (the “**Rules**”) and pursuant to California law. Disputes which the partiesagree to arbitrate, and thereby agree to waive any right to a trial by jury, include any statutoryclaims under state or federal law, including, but not limited to, claims under Title VII of theCivil Rights Act of 1964, the Americans With Disabilities Act of 1990, the Age Discrimination inEmployment Act of 1967, the
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Older Workers Benefit Protection Act, the California Fair Employment and Housing Act, theCalifornia Labor Code, claims of harassment, discrimination or wrongful termination and anystatutory claims. The parties further understand that this Agreement to arbitrate also applies toany disputes that the Company may have with Employee.
          (b) Procedure. The parties agree that any arbitration will be administered by theAmerican Arbitration Association (“AAA”) and that a neutral arbitrator will be selected in a mannerconsistent with its National Rules for the Resolution of Employment Disputes. The parties agreethat any arbitration under this section shall be conducted in San Mateo, California. Thearbitration proceedings will allow for discovery according to the *AAA National Rules for theResolution of Employment Disputes,*or the Rules. The parties agree that the arbitrator shall havethe power to decide any motions brought by any party to the arbitration, including motions forsummary judgment and/or adjudication and motions to dismiss and demurrers, prior to any arbitrationhearing. The parties agree that the arbitrator shall issue a written decision on the merits. Theparties also agree that the arbitrator shall have the power to award any remedies, includingattorneys’ fees and costs, available under applicable law. The parties understand the Company willpay for any administrative or hearing fees charged by the arbitrator or AAA except that Employeeshall pay the first $200.00 of any filing fees associated with any arbitration Employee initiates.The parties agree that the arbitrator shall administer and conduct any arbitration in a mannerconsistent with the Rules and that to the extent that the AAA’s National Rules for the Resolutionof Employment Disputes conflict with the Rules, the Rules shall take precedence.
          (c) Remedy. Except as provided by the Rules, arbitration shall be the sole, exclusiveand final remedy for any dispute between Employee and the Company. Accordingly, except as providedfor by the Rules, neither Employee nor the Company will be permitted to pursue court actionregarding claims that are subject to arbitration. Notwithstanding, the arbitrator will not havethe authority to disregard or refuse to enforce any lawful company policy, and the arbitrator shallnot order or require the Company to adopt a policy not otherwise required by law which the Companyhas not adopted.
          (d) Availability of injunctive relief. In accordance with Rule 1281.8 of theCalifornia Code of Civil Procedure, the parties agree that any party may also petition the courtfor injunctive relief where either party alleges or claims a violation of the Employment,Confidential Information, Invention Assignment Agreement between Employee and the Company or anyother agreement regarding trade secrets, confidential information, nonsolicitation or Labor Code§2870. In the event either party seeks injunctive relief, the prevailing party shall be entitledto recover reasonable costs and attorneys’ fees.
          (e) Administrative relief. The parties understand that this Agreement does notprohibit Employee from pursuing an administrative claim with a local, state or federaladministrative body such as the Department of Fair Employment and Housing, the Equal EmploymentOpportunity Commission or the Workers’ Compensation Board. This Agreement does, however, precludeEmployee from pursuing court action regarding any such claim.
          (f) Voluntary nature of agreement. Employee acknowledges and agrees that Employee isexecuting this Agreement voluntarily and without any duress or undue influence by the
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Company or anyone else. Employee further acknowledges and agrees that Employee has carefullyread this Agreement and that Employee has asked any questions needed for Employee to understand theterms, consequences and binding effect of this Agreement and fully understand it, including thatEMPLOYEE IS WAIVING HIS RIGHT TO A JURY TRIAL. Finally, Employee agrees that he has been providedan opportunity to seek the advice of an attorney of his choice before signing this Agreement.
     9. Miscellaneous Provisions.
          (a) No Duty to Mitigate. The Employee shall not be required to mitigate the amount ofany payment contemplated by this Agreement, nor shall any such payment be reduced by any earningsthat the Employee may receive from any other source.
          (b) Waiver. No provision of this Agreement may be modified, waived or dischargedunless the modification, waiver or discharge is agreed to in writing and signed by the Employee andby an authorized officer of the Company (other than the Employee). No waiver by either party ofany breach of, or of compliance with, any condition or provision of this Agreement by the otherparty shall be considered a waiver of any other condition or provision or of the same condition orprovision at another time.
          (c) Integration. This Agreement and any outstanding stock option agreementsreferenced herein represent the entire agreement and understanding between the parties as to thesubject matter herein and supersede all prior or contemporaneous agreements, whether written ororal, with respect to this Agreement (including the Prior Agreement) and any stock optionagreement**.**
          (d) Choice of Law. The validity, interpretation, construction and performance of thisAgreement shall be governed by the internal substantive laws, but not the conflicts of law rules,of the State of California.
          (e) Severability. The invalidity or unenforceability of any provision or provisionsof this Agreement shall not affect the validity or enforceability of any other provision hereof,which shall remain in full force and effect.
          (f) Employment Taxes. All payments made pursuant to this Agreement shall be subjectto withholding of applicable income and employment taxes.
          (g) Counterparts. This Agreement may be executed in counterparts, each of which shallbe deemed an original, but all of which together will constitute one and the same instrument.
     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of theCompany by its duly authorized officer, as of the day and year first above written.
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     COMPANY: ARGONAUT TECHNOLOGIES, INC.      By:             Name:            Title:              EMPLOYEE:              Signature          Printed Name
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